The current rally in U.S is definitely a bear-market rally.Meanwhile,in Malaysia,it’s a political rally. Local funds (private / government) have been holding up KLCI since Dec 2008.Whether they are instructed to do so does not matter.

Comparatively,companies in Bursa Malaysia are much more expensive than companies in Singapore, Hong Kong and other countries in ASIA.It’s sad to say that the current rally will mark a starting point for further decline for stocks in Bursa Malaysia.

There are a few reasons for the continuition of decline in Bursa Malaysia

2) Political uncertainties from now until next election. Or maybe for the next 10 years as capable leader is not yet produced.

3) Weakening export. U.S & Europe are still in recession.

4) Weak consumer sentiment and rising unemployment. This can be seen in retail sales and home sales. The government and media are trying very hard to cover it up. But you can actually see weakening sentiment with your naked eyes.

This article was taken from The Edge. The article is very important to long term investors in KLSE.

On enforcementLast year was a successful year for our enforcement efforts. Our enforcement measures resulted in swift action against the perpetrators of offences. We also have increasingly resorted to civil action to obtain restitution for investors.

Is that partly because the other actions, such as criminal prosecution or action under the securities offences, have not got the kind of results that you expected?
We have got a range of enforcement tools available to us. We have been increasingly adopting a more strategic approach towards enforcement. In the past, we have tended to rely mainly on criminal prosecution but that takes time. The courts have a backlog of cases and we have to take our turn. So, we needed to look at more effective and efficient enforcement measures although we still resort to criminal prosecution where it is warranted. But increasingly we apply administrative action, which offers quick and effective resolution, and we take civil action in appropriate cases. But we assess each case and still prosecute the major offences.

The evidence is that a lot of crime has been committed but eventually no one gets charged or if charged, not convicted with a stiff penalty. And that seems to encourage more such crime. Your comments, please.There is a perception that because the SC is the regulator of the capital market, every offence in the capital market, be it by public—listed companies or the directors or the management or even the auditors, falls within the jurisdiction of the SC. Where it does fall within our jurisdiction, our approach is very clear. We will take action, investigate and, if the facts and the evidence warrant it, enforcement action will be taken. And you have seen our track record on this. But sometimes offences in the capital market do not fall within the jurisdiction of the SC. The SC has jurisdiction only where there is a breach of securities laws. Many offences committed in the capital market may not be breaches of securities laws. Some may be criminal breach of trust, which is a penal code offence. Or it could be a breach of directors’ duty to act honestly in the best interest of the company, which is a Companies Act offence. Where in the course of our investigation we uncover these offences, we hand over the information to the relevant agencies as we don’t have the powers to investigate and prosecute. Where, however, the facts reveal multiple offences, then we will be able to mount a joint prosecution.

Now,you should have calculated annual EPS growth (from Part 4), understood a company’s strength,weakness,opportunity and threats (SWOT) (from Part 5) and analysed financial ratios in financial statements (Part 6). Next is to dig further into the management of the company.

Well, there are cases which companies were investigated by S.C on irregularities in annual report and some CEO are investigated for corruptions.As a value investor, you should put these companies away from your portfolio. Remember, it is ……(continue)

The 3rd criteria is to recognize ‘EPS Manipulation’ in financial statement.Before buying a share, read the ‘Notes to the financial statement’. Get to know how the company define its sales, expenses, debt and others. Look for irregularities in the financial statements such as extraordinary write off, special expenditure and so on. This means you as an investor must question every ‘weird’ numbers in the financial statement. Each financial statement will go through an artist work (by the accountant) to hide any ugly sides of the company.

For example, a company can declare its sales before the products are sold to the end users. This means the company declares its revenue before it receives the cash or before the cerdit term expires. By doing the ‘art work’, the company can significantly increase revenue, reduce expenses and get a better EPS.

The second criteria is a synergy between the management & political influence. A company with the best management team will fall if the current government policy hinders the core business operation. NEP policy towards certain industries must be given great attention. To stay updated with the economy news, get different views from the local media, which are controlled by the government & oppositions’ sources.Relying on one source is an act of a fool.By analysing different views from both sources,a better investment decision can be made.

A company’s business operation is largely affected by the change in the government policy and law.For example,if the price of a product/service is tagged by the law,then the company can only increase its net profit by reducing the expenses,increase efficiency or ….(continue)

What are the criteria in choosing a public listed company to invest in?These criteria is obtained from the book,”The New Buffetology” which is written by Mary Buffet.I will explain how can you apply those criteria in KLSE.Some criteria might not be suitable and need some modifications.

The first criteria is the EPS pattern over a decade.By observing the EPS pattern for the past 8 to 10 years,an investor will be able to get a sense of a company’s sustainability and reliability in its industry. You should chart the EPS in Excel as linear graph, and observe its EPS fluctuation and direction.If the fluctuation of the EPS is little and the trend is upward,then you are looking at a stable company.You can only predict the future of a company which has shown stable growth over the 10 years.Small fluctuation of EPS is acceptable.

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